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Last Updated: Tuesday, 21 November 2006, 14:06 GMT
Q&A: The future of ITV
Family watching NTL cable TV service
NTL will be rebranded as Virgin Media in 2007

The UK's main commercial broadcaster ITV has become a takeover target. Satellite broadcaster BSkyB has spent 940m amassing a 17.9% stake in the company while its rival, cable television operator NTL, has made a merger proposal.

Now the television industry and the financial markets are eagerly watching for the next episode in the drama.

Why is ITV seen as a target?

The number of people watching its flagship ITV1 channel has fallen as the growth of multi-channel TV has increased consumer viewing choices.

ITV's programme output has been criticised for lacking imagination and relying too heavily on reality-based shows.

At the same time, ITV1's share of advertising has fallen in the face of rival channels and the growth of the internet as an advertising medium.

ITV has been without a permanent chief executive since the end of September, fuelling concerns about its future direction and leadership.

That said, ITV remains a successful business and a highly attractive brand.

ITV1 is the UK's most watched commercial TV channel, attracting 45 million viewers on average a week.

It also has a huge programme library, and produces more than 600m of original programming itself a year.

What does NTL hope to gain by merging with ITV?

NTL is the main provider of cable TV services in the UK.

But it has always needed to buy in content.

By merging with ITV, it will have a source of programmes.

It will also be able to cross-promote its services from free-to-air channels.

And that could help it steal a march on its larger, better capitalised rival BSkyB.

Why did ITV reject the NTL proposal?

The ITV board has said that NTL proposal did not offer fair value for the company.

Jason Donovan in I'm a Celebrity Get Me Out of Here
ITV1 still attracts large audiences

ITV believes that NTL has under-valued its shares, and that its fortunes will revive.

It also suspects that NTL - which already has large debts - would finance its purchase by taking out more debt, putting a bigger burden on shareholders in the future.

And it does not believe that NTL's cable distribution system would help it much.

ITV is already moving to distribute more programmes on free-to-air satellite channels.

Why did BSkyB buy a stake in ITV?

BSkyB said it saw in ITV a lot of potential to make money for shareholders - hoping to help turn around the troubled broadcaster.

However, few believed that the motive of BSkyB and its chief executive James Murdoch was as simple as this.

The theory carrying most credence is that BSkyB wanted to scupper a tie-up between ITV and NTL - in what BBC Business Editor Robert Peston described as "an astonishing spoiling tactic".

In a world moving increasingly towards cable and broadband - rather than satellite - BSkyB may well have seen a real threat in an ITV/NTL partnership.

James Murdoch, BSkyB chief executive
BSkyB's James Murdoch believes ITV is a good investment

The satellite broadcaster may also have been worried that together ITV and NTL would have been able to pitch for lucrative contracts on which BSkyB depends to keep its viewers - most notably Premiership football.

By buying just under 18% of ITV, it has seized enough ground to make it hard for NTL to continue its takeover plans - while at the same time not falling foul of regulators which allow it to own no more than 20% on competition grounds.

While BSkyB says it does not want a seat on the board at ITV, a close relationship may make commercial sense.

There is the potential for the two firms to share more sports rights and strike deals to use ITV shows as content on its own channels.

Some analysts believe BSkyB's move has - if nothing else - put any NTL-ITV alliance "on ice" until regulatory issues have been ironed out.

What are NTL's objections to BSkyB's move?

Essentially, it thinks that the only reason BSkyB has got involved in ITV is because it knew NTL was eyeing it up.

Therefore BSkyB's intervention was anti-competitive, NTL is likely argue.

It is also, perhaps understandably, a bit miffed that its plans have been scuppered.

NTL would have great difficulty in doing a deal with ITV while BSkyB has such a big stake, which gives it a vote on the board and a potential veto on any deals.

And as NTL was relying on large levels of debt to finance any move for ITV, it may struggle to secure the funding if it was not to have 100% control of the company.

What will happen now?

Sir Richard Branson, who became NTL's largest shareholder after its acquisition of Virgin Mobile, has called on the Office of Fair Trading to intervene. as he believes BSkyB's move may breach the Enterprise Act.

NTL may also appeal to British and European regulators.

NTL sees itself as the only serious competition to BSkyB in the UK cable television industry and believes that it has been stopped from being able to compete.

It believes BSkyB should be forced to cut its ITV stake or sell it completely.

Are there any other players in this soap opera?

German broadcaster RTL was rumoured to be preparing its own bid for ITV but reports suggest its interest has cooled.

Earlier in the year, other private equity groups appeared to be preparing a bid, and one even approached former BBC boss Greg Dyke as a possible chairman of ITV.

Now that ITV has rejected the NTL proposal, they may come back into the game.


SEE ALSO
Branson challenges BSkyB over ITV
19 Nov 06 |  Business
BSkyB snaps up 17.9% stake in ITV
17 Nov 06 |  Business
RTL 'planning 5bn bid for ITV'
17 Nov 06 |  Business
NTL reveals ITV merger interest
09 Nov 06 |  Business
NTL launches quadruple-play deal
27 Sep 06 |  Business
Virgin Mobile to be bought by NTL
04 Apr 06 |  Business

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